Investing in Argentina: A General Overview

Argentina has several sectors that represent potential opportunities for investment. These sectors include, among others, oil and gas, mining, global services, telecommunications, media and technology, tourism and agroindustry.

As a founding member of regional trade block MERCOSUR, together with Brazil, Paraguay and Uruguay, most Argentinean products are available tariff-free to a population of approximately 270 million people.

Furthermore, Argentina has a long history as an excellent producer with high-level natural resources, professionals and technicians that create sound conditions for the growth of different industries within the country.  Steel pipes, farm machinery, medical equipment and the automotive industry are leading export sectors in Argentina. It also has fast-growing sectors such as biotechnology and knowledge-based services.

Importantly, the Argentinian government, through several of its laws, provides investors with incentives in the different industries, making it easier and more attractive for them to invest in Argentina through its different economic sectors.

Moreover, during 2020, a newly improved and inclusive law may be enacted, seeking to boost the growth of Argentina’s export services. Within the new scope of this potential law, there may be a 60 percent reduction in income tax; a 70 percent reduction in employer contributions; and a 10 percent extra reduction when hiring female specialists in science and technology.

Natural Resources

Due to its wealth of natural resources, Argentina has the potential to become a world-class energy supplier, joining the global energy markets via oil and gas exports. In 2015, it was considered the second in nonconventional gas resources and fourth in nonconventional oil resources at a global level by the U.S. Energy Information Administration.

Argentina has excellent hydrocarbon resources that make it an important player in the global energy markets, and is one of the four countries in the world that commercially develops nonconventional resources.

Similarly, Argentina’s forest industry has the potential to develop major industrial projects related to wood processing. Moreover, there are several opportunities for multilateral entities, climatic funding and carbon credits, as well as for harnessing wood residues as a renewable energy source. 

With respect to mining, Argentina has the unique potential for modern and sustainable mining development. The country’s richness comprises a huge territorial extension for sustainable mining activities and has the capacity to multiply the production of several minerals such as lithium, gold, silver and copper, and to triple mining exports. Argentina produces lime, borate, plaster, bentonite, granite and porphyry, and has exploration potential for potassium, uranium and critical elements such as rare earth-based compounds, cobalt, nickel, vanadium, antimonium, wolfram, graphite and manganese.

Importantly, the Argentinean government provides investors with several incentives, such as fiscal stability and zero-percent import taxes on capital goods for mining activities, among others. As a result, Argentina has over 30 advanced projects with US$27.25 billion in capital expenditures. Consequently, the world’s biggest mining companies are producing and investing in Argentina.

Global Services

Argentina has a developed global services industry with more than a decade of constant growth, favored by its human capital talent, time zone benefits, business environment and the quality of its local technological infrastructure.

Technology

Due to Argentina’s high-quality human capital, there has been a state policy in recent years to foster different technologies.

Furthermore, Argentina is a frontrunner in software development and exports, with over 4,200 companies in the field. It is also a benchmark in Latin America with respect to technological services applied to agroindustry and is gaining momentum in the videogame and financial technology fields.

Additionally, Argentina offers opportunities for infrastructure investment in telecommunications and technology. As a result of its strategic geographical location, Argentina has the capacity for capturing a digital traffic increase at a local and regional level. This provides a clear opportunity to address the increasing demand, improve connectivity quality and speed, and make room for new technologies such as 5G.

Moreover, due to its government-driven data centers promotion plan, which includes specific legislation as a result of industry requirements, Argentina has the necessary elements to become a regional hub for massive data centers and to consolidate its technological leadership in the region.

Tourism

Argentina has unique landscapes, a variety of climates and ecosystems, and cultural and gastronomic appeal, making it an excellent destination with growth potential reflected by the increasing number of international tourists. Argentina offers exceptional conditions for projects in this field, in tune with the new trends and requirements which are becoming more demanding in the context of the coronavirus pandemic.

Importantly, Argentina has a unique commitment to the preservation of natural areas and invites investors to develop ecotourism projects in which visitor services, sustainable infrastructure and contact with nature can be combined.

Food and Agroindustry

Geographically, Argentina is almost as large as India, with over half of its territory being fertile and agricultural land. Consequently, it produces quality food for almost 400 million people. 

Argentina is internationally renowned for its agricultural industry, with excellent climatic and soil features, human capital with a long history in the industry and high acquisition of technology to work the land. Importantly, Argentina is a leading exporter of soybean oil, soy flour, biodiesel, lemon oil and peanut oil, and it is an important exporter of corn and wheat flour, among others.

One of Argentina’s niche sectors is animal protein, which offers opportunities to increase livestock production in order to address the increasing local demand due in part to the country’s grain surplus. Argentina is considered to have world-class meat production, exporting to top destinations such as the United States, Canada, China and Japan, among others. It produces 5 percent of the world’s beef production, being the fifth largest global beef exporter with over US$3.1 billion in exports in 2019.

Importantly, Argentina has a low cost in food production and efficient crop production, among several other strengths in this industry. It has significant areas of land available to expand production, with climatic diversity, water availability and excellent soil that result in high agricultural yields. These characteristics present investors with several opportunities, such as integration of agricultural and animal production systems and the opportunity to add value to primary production through vertical integration, among others.  

With respect to organic foods, Argentina has the necessary resources to become a strong competitor at a global level, as well as the potential to double the country’s production of organic fruits and vegetables.

Nationalization of Entities

A recurrent concern of foreign investors in Argentina is the possibility of nationalization of their entities by the government. Recently, the current administration placed some measures that may have suggested a trend of nationalization of entities. However, as a result of the private sector’s reaction to such measures, the Argentinean government immediately modified them.

Even though it is hard to rule it out, especially taking into consideration Argentina’s history, nationalization of entities is not a realistic possibility for the time being. Nevertheless, it is always important to structure investments properly through local advice and guidance.

Investing in Brazil: A General Overview

In recent years, the Brazilian government has put together an ambitious portfolio of investment opportunities for the private sector through its Investment Partnership Program (IPP). This portfolio is probably the most comprehensive package ever offered by the Brazilian government to investors, covering several areas such as infrastructure, services and energy, among others, where assets are particularly valuable.

Furthermore, Brazil is the largest economy of South America, being the fifth largest country in the world with more than 8.5 million square kilometers and 7,491 kilometers of coastline, and the sixth largest population in the world with more than 210 million people. It is also the ninth largest economy in the world with a GDP of more than US$1.8 trillion, and it was the sixth global recipient of foreign direct investment in 2019, which represents approximately US$78 billion.

Infrastructure

As part of Brazil’s IPP, the concession of airports, highways and ports, among others, are being offered by the government to the private sector and is open to foreign investment.

The Brazilian government is currently offering 22 regional airports in three different regions of Brazil. An estimate of 23.8 million passengers per year are expected to travel through these airports. As a result, the Brazilian government is seeking investment of approximately US$1.54 billion.

With respect to ports, Brazil is offering 20 terminals for leasing along the Brazilian coast, plus an innovative program of privatization of the management of entire ports in Brazil under a concession regime. 

Importantly, a recent change in Brazilian laws reinforces freedom pricing among the guidelines of the Brazilian port sector and simplifies the mandatory content of lease agreements for greater flexibility. Brazilian port laws also provide a regime of “temporary use” as a more flexible, short-term alternative to a long-term lease, allowing interested parties to test the feasibility of handling cargoes without a consolidated market with no competitive bidding required, subject to the oversight of the port authority. This recent legal reform also introduced special measures in response to the current pandemic, ensuring the continuity of port activities.

Additionally, the Brazilian government intends to promote the development of coastal shipping (cabotagem) and to address freight cost inefficiencies. It is proposing to expand its fleet by introducing more flexible rules allowing the use of third-party vessels and to stimulate the development of the naval industry, especially for repairs and maintenance. The promotion of the modernization and expansion of port facilities is also intended by the Brazilian government in this context.

Regarding highways, due to Brazil’s size, there is potential for construction and maintenance projects, as well as for making the road system more profitable for investment by the private sector.

Traditionally a highway country not used to railways, Brazil has potential room for the construction and development of railways across the nation. Railways are the ideal means for transporting agricultural products to ports for exportation. Parties in the agricultural industry have recently sought further development of railways across the country. 

In addition to Brazil’s opportunities for infrastructure development, a record low cost of capital by Brazil’s standards and a favorable currency exchange rate make for an attractive environment for foreign investors. 

Natural Resources

With respect to its natural resources, Brazil is offering, through the IPP, a mining portfolio to foreign investors, seeking an investment of approximately US$319 million. This portfolio includes mining of kaolin, phosphate, copper and coal and others.

Furthermore, Brazil is one of the main global producers and exporters of iron ore, soybeans, animal protein, coffee, machinery and aircraft, among others.

Energy and Oil & Gas

In 2019, Brazil received US$6.5 billion in investments in energy. The market predictions for the oil and gas sector are very optimistic, with a significant increase in investments and reactivation of the sectorial chain. According to the IPP and the National Petroleum, Natural Gas and Biofuels Agency (ANP), the sector expects to receive approximately US$30 billion in investments in the coming years.

Through the IPP, the Brazilian government is offering an energy portfolio to the private sector, including foreign investors, with a special emphasis on sustainable energy. This portfolio includes hundreds of exploratory blocks (offshore and onshore) for oil and gas under concession and production sharing regimes. With respect to natural gas, Brazil has a potential growth of demand for thermoelectric plants, industries, vehicles and houses. Consequently, the Brazilian government seeks to stimulate new investments in this industry, mainly through the private sector, and increase competition in gas production, transportation and commercialization, ending the de facto gas monopoly of Petrobras, Brazil’s major oil & gas company whose majority shareholder is the Brazilian government.

Under the Petrobras Divestment Program, there are investment opportunities for new players in Petrobras, with a total cash inflow of US$997 million in 2020. The program includes investment opportunities in several kinds of projects such as oil and gas thermoelectric power plants, refineries (50 percent of the refining capacity) and gas transportation and distribution, among others.

Additionally, Brazil’s new legislation on natural gas intends to increase gas presence in the Brazilian Energy Matrix, and to increase the exploitation, importation, and development of the collection and distribution infrastructures. These new laws on natural gas provide rules that serve all players equally and avoid the formation of private monopolies, allowing a more open, dynamic, and competitive market, while reducing the price of natural gas for the final consumer.

In order to guarantee competition and equal access to the gas pipeline network, new laws on natural gas impose a requirement for the independence of the transportation activity. In other words, those participating in transportation may not be authorized to participate in any other activity of the natural gas supply chain. Although those participating in distribution activities may be authorized to participate in other stages of the supply chain, they will be required to comply with certain specific corporate governance rules.

Privatizations and Concessions

Brazil has several state-owned entities that are being offered for privatization to foreign investment. These entities include the Brazilian National Mint and Eletrobras, the largest energy company in Latin America with a third of the country’s whole generation capacity and half of the energy transmission infrastructure in Brazil.

With respect to concessions, pursuant to the IPP, auctions are required to be conducted under maximum technical rigor with a focus on improving services to the people and the productive sector. All contracts within this program are required to have clear indicators to improve legal certainty.

Similarly, auction notices under this program may only be released after public debate and endorsement by the Federal Court of Auditors, and all of them are to be published in Portuguese and English. The minimum term between the auction notice and the bid is 100 days.

Concessions may only be granted to projects with environmental feasibility, and existing concessions are required to remain committed to ensuring balanced projects. 

Capital Markets and Venture Capital

The number of Brazilian nationals investing in Sao Paulo’s B3 stock exchange has tripled since early 2019, going from 813,000 to 2.5 million, which is still less than 1.5 percent of the population. This presents a good opportunity for foreign investors to invest in the exchange, since there is considerable room for growth.

Importantly, capital markets in Brazil have recovered since the beginning of the pandemic. In 2019, IPOs registered a global drop, but increased by 66 percent in Brazil, outperforming the global average. The volume generated by public offerings grew by 51 percent from 2018 to 2019 – from 6.7 billion Brazilian reais to 10.2 billion Brazilian reais. Moreover, as of September 2020, 40 companies have filed for initial public offerings.

Additionally, the exchange rate of U.S. dollars to Brazilian reais increased 30 percent over a year, with one U.S. dollar being equivalent to 5.30 Brazilian reais (as of early September, 2020). Foreign investors may consider taking advantage of the depreciation of the currency when evaluating potential opportunities in Brazilian capital markets.

Similarly, the private sector in Brazil has been recovering. In the past few months, there has been a 50 percent increase of mergers and acquisitions deals happening in Brazil.

Brazil’s venture capital main sectors are financial technology, health technology, logistics and mobility. In 2015, venture capital in Brazil was worth approximately 1.5 billion Brazilian reais. It has grown to 12.03 billion Brazilian reais in 2020. Financial technology is the largest sector in venture capital, with over 800 startups dealing in a vast number of areas within the sector. Similarly, two health technology companies are created each week in Brazil. 

Investing in Chile: A General Overview

With a population of 18 million people, Chile has a GDP of approximately US$300 billion, one of the highest GDP per capita in the region.

Chile has 29 trade agreements with over 64 different markets, and 33 double taxation treaties.

Despite global forecasts of significant decreases on foreign direct investment inflows, Chile has seen a positive scenario with a foreign direct investment inflow of US$9.546 million, the third highest accumulated amount for the January-June period of the entire historical series (2003-2020).

This comes as no surprise when understanding Chile’s robust foreign direct investment regime. The regime provides for nondiscrimination through the national treatment standard, meaning that foreign companies based in Chile enjoy the same rights and obligations as Chilean companies. It furthermore provides free flow of capital and profits, allowing the entry and repatriation of capital without cost or constraints beyond procedural formalities, as well as a pro-business environment with simple tax structures, an easy company setup process and flexible border measures.

Chile is an open country with an open market, very low tariffs, if any, and many foreign investments. Chilean nationals are normally receptive to foreign investment and commonly join forces with foreign investors. Particularly, Chile offers opportunities for foreign investors in six key sectors: food, infrastructure, tourism, mining, real estate and energy.

Natural Resources

Chile’s mining industry is doing well and is confident that it will continue to be a key pillar of the economy despite the COVID-19 pandemic. Importantly, key copper projects have not reported delays even though copper prices show high volatility in the short term. Moreover, Chile has 54 percent of the world’s lithium reserves with the lowest cost of extraction.

Automation and remote control of operations have been part of the mining technology roadmap for several years, attracting more investment within this industry. Moreover, investors can get involved in construction equipment, engineering and all types of support services.

Energy

With excellent wind and solar conditions for wind power generation and photovoltaic projects, Chile has great growth potential in renewable energies. Consequently, investors can participate in diverse types of renewable energy projects.

Real Estate

Chile offers several investment opportunities for foreigners in residential and commercial real estate. The capital city of Santiago may be a good opportunity for investors to start investing in real state, as prices on real estate in this city are lower than those of many other cities throughout South America.

Investors may also want to explore real estate investment opportunities in the countryside, which provides additional investment opportunities as Chile is one of the world’s largest fruit exporters and an important exporter of wine, both of which are produced in Chile’s countryside. Owning these kinds of real estate could give investors immediate exposure to the exportation of Chilean products.

Food and Agroindustry

Chile has strong food and agricultural industries. Chile is a food producer and exporter, with its e-commerce sales having doubled over the past few years as result of food sales.

Furthermore, logistics chain imports and exports have not stopped. With a pest-free zone, Chile is the biggest exporter of grapes, blueberries, cherries and dried plums, as well as of fresh and frozen salmon, and is the fourth biggest wine exporter in the world.

Importantly, there are several areas of opportunity within these industries, including technologies and infrastructure for water management, replacement of meat protein, crop monitoring, nanosatellite mapping, fertilization, irrigation, among others.

Tourism

Chile is regarded as a top destination by leading travel guides, with great potential for sustainable tourism. It further has ideal conditions for astronomical observation, with 60 percent of the investment in astronomical infrastructure in the world.

Investors can seek investment opportunities in the hotel industry, leisure projects and special interest tourism such as adventure tourism.

Infrastructure

Chile’s concession portfolio for 2020-2024 is US$12.8 billion, the largest in its history. Chile’s concession system has been in place since the early 1990s and has become a worldwide model. In the last 26 years, 94 contracts have been awarded, out of which 65 are currently in operation. Infrastructure projects offered by the government include highways, airports, hospitals and dams, among others.